A strategic oversight? Why the Industrial Strategy will struggle to address the UK’s productivity problem

Reducing place to one of a number of ‘foundations’ will limit the ability of the Industrial Strategy to tackle the UK’s productivity malaise

To tackle the UK’s productivity problem, policy makers need to improve the performance of cities outside the Greater South East, the majority of which – as our research shows – are punching below their weight. Sadly, yesterday’s Industrial Strategy fails to set out how it will do this.

Place does get a mention in the document – it has gone from one of 10 ‘pillars’ in the green paper to one of five ‘foundations’ in the white paper. But the criticism of the approach remains now as it was when the green paper was released in January. The economy happens not in the abstract but in places, and so this should be the overarching theme of any industrial strategy, rather than one of many themes.

The other four foundations of the Industrial Strategy play out mainly in cities – our urban areas act as the platform where many ideas are created and commercialised, where businesses trade, where people live and where transport takes these people to their job.

Greg Clark showed an understanding of this when the idea of the industrial strategy was first raised – he talked about the need to for a ‘place-based’ approach. But over a year later, while we have a section for place in the document, this strategy is far from ‘place-based’. At times it feels like place is mentioned in the context of the social and political imperative to spread growth across the country. Instead, it should recognise that the UK economy isn’t one economy, but a series of them, and a number of these economies are not contributing in the way that they should be.

The strategy also resorts back to discussion about sectors and deals for them. There is no doubt that the UK has a number of world beating companies in cutting edge sectors. But the high-value components of these sectors are mainly based in the Greater South East, which is shown in the varying productivity performance of the same sectors across the country.

A deal for the automotive sector may well help it to become more innovative. But this is how it is likely to play out across the country: it will increase productivity of design and engineering jobs in Nissan’s Greater South East facilities, but will do little to increase productivity in its plant in Sunderland. This is because it won’t address the fundamental barriers that have hampered the attraction of high-skilled business investment into the city for the last 50 years, with skills being the chief reason amongst them.

This is reflected in the location decisions of the two investments heralded in the press release accompanying the strategy. The pharma company MSD will invest in London, a place that offers access to lots of high skilled workers and a network of knowledge businesses. Likewise QIAGEN, another pharma company, is investing in Manchester, reflecting the growing benefits that the city offers to businesses. These location decisions are not random.

There are some good things in the strategy. Most of these were in last week’s Budget, such as the extension of the National Productivity Investment Fund and the creation of the Transforming Cities Fund that is part of it. Some of them are new, such as the National Retraining Scheme, which in theory is a sensible scheme to allow people and places adapt to on-going economic change.

But after a Budget that had a strong place theme in it, the Industrial Strategy has failed to build on this, and so has not clearly set out how it will address the productivity underperformance of places outside of the Greater South East. And the UK’s productivity problem will remain if this is not addressed.

The onus now falls on to the cities themselves to set out how they are going to use the tools at their disposal to address the productivity challenges they face. Through the Government’s devolution agenda, and the money allocated to a number of recently-announced national funds, metro mayors in particular have had the opportunity to put together a package of policies that deal with the specific challenges each area faces.

The strategy also has some interesting tools buried in its 255 pages. It’s now up to the cities to digest and decipher how useful they will be.

We’ll have more analysis of the Industrial Strategy in the coming days – watch this space for more details.

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